One of the most common questions or concerns that people have when they file a bankruptcy case is whether they will loose any assets. The issue of retaining ones home, car and even wages has frankly been discussed to death. However, one issue that has not received the treatment it deserves is whether someone who has been injured in a car accident or some other work related accident will be able to keep their settlement funds.
The Federal exemptions are a funny thing, in that they tend to protect tangible assets, but not give much protection to the more important intangible ones such as a personal injury settlement. At first glace, it may appear that a significant amount of money can be retained on a personal injury claim, up to $20,200. However upon a closer inspection of the code, really only lost wages and medical expenses seem to receive any true protection, unless you have not used up your "wild card".
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The Federal law is quite clear on this issue; Section 522(D)(11)(D) of the Bankruptcy Code allows exemptions of Personal injury recovery up to $20,200 except for pain and suffering or for pecuniary loss. Additionally, if you have no equity in your home, or do not even own a home, you can claim an additional $21,625 in a wild card exemption. So what does this actually mean? In plain English, the way your attorney and insurance company classify your settlement may have more importance on whether you get to keep your money then the injury sustained itself.
The other issue that comes into play when determining if you get to keep any proceeds from a personal injury case relates to which of your Creditors file "proof of claims". These proof of claims are basically a document that your creditors file which confirms that you owe them some money. If they not file these documents in time, they waive their right to collect any money that may be liquidated in a Chapter 7 case. Why this is important goes to the amount of your non-exempt assets that can be liquidated. The Trustee can only liquidate up to the value of the proof of claims filed, in addition to their own legal fees.
It should be noted though that many states have their own set of exemptions that a Debtor may choose instead of the Federal statute. You should certainly consult a local bankruptcy attorney to discuss which option would be better for you.
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